After downgrading the AAA ratings of France and Austria, Standard & Poor’s Ratings Services has also lowered its rating on the eurozone bailout fund.
Last week, S&P lowered the long-term sovereign credit ratings on two of the European Financial Stability Facility’s previously ‘AAA’ rated guarantors. As the fund’s obligations are no longer fully supported by guarantees from AAA rated countries, S&P Monday lowered the long-term issuer credit rating on the fund.
The rating outlook on the fund is characterized as “developing”, which S&P says reflects the likelihood that it may either raise or lower the ratings over the next two years. The outlook on the ratings for France and Austria is negative, indicating that there is at least a one-in-three chance that it will lower the ratings again in 2012 or 2013.
For the fund, S&P notes that EFSF member states may currently be exploring credit-enhancement options, and if it adopts credit enhancements that are sufficient to offset its now-reduced creditworthiness, it would likely return the EFSF’s long-term ratings to AAA.
Conversely, if sufficient offsetting credit enhancements aren’t forthcoming, S&P would likely change the outlook to negative to mirror the negative outlooks of France and Austria.